ECB Chief alls inflation a “monster”

Last week, Eurozone inflation fell less than expected, despite a drop in energy prices. The inflation rate fell from 10.6% in October to 8.5% in February, but economists had forecast a more significant drop to 8.2%. Meanwhile, core inflation, which excludes volatile food and energy prices and is closely followed by central bankers, jumped to 5.6% in February from 5.3% in January. Christine Lagarde, president of the European Central Bank (ECB), stated that the central bank would have to keep raising interest rates to ensure price stability, adding that a 50 basis point rate hike in March was “very likely.”

Lagarde, referencing the central bank’s inflation target, said, “We will do whatever is needed to return inflation to 2%. I see our action as being more sustained because inflation is a monster that we need to knock on the head and keep at 2%.” The ECB has been raising its key deposit rate from negative 0.5% to 2.5% since last summer, after eight years of negative interest rates, in order to fight the rise of inflation. Economists expect the central bank will continue to increase interest rates until they hit 4%, topping 2001’s peak of 3.75%.

According to an expert, the latest Eurozone inflation data has confirmed further rate hikes from the ECB. After fears about the potential for the ECB’s rate hikes to spark a recession, Lagarde promised to be “data dependent” and understanding of the economic costs of rising rates. She added that for now, the economy remains “resilient” and the labor market is strong, which gives her faith that more rate hikes are appropriate. The unemployment rate in the Euro Zone remained at 6.7% in January, just a hair off the record low of 6.6% seen in October.

Lagarde said the strong employment data and low energy prices have given her a more positive outlook for the European economy moving forward, and she doesn’t expect a recession in 2023. Despite the better-than-expected aspects of the European economy, Lagarde noted that persistent inflation means temporary support from governments may still be needed to help “vulnerable people” cope with the rising cost of living. She also said that the future of the European economy remains uncertain due to the war in Ukraine.